How To Do Everything Wrong and Still End Up Financially Independent

Today’s post is from Pauline of InvestmentZen.com. So sit up straight and give her your full attention. HEY. Don’t make me have to take away your phone.

There are so many ways to reach a same goal, and financial independence is one such pursuit where everyone does things their way. But the usual tends to be something like: pay off your mortgage early, keep living frugally, invest the rest, wait a couple of decades for your nest egg to compound, reach a 25x living expenses net worth, done. I did things a bit differently. Like Nelson warned in this post, this is by no means a way to say that will work for you, or that should be the path everyone should follow. Not at all.

I took more risks and it happens to have worked quite well. But it was stressful at times. Here are a few examples.

My first property was a rental

I bought my first property just before graduation with the $25,000 I had saved during college. I had been hustling hard for five years, and found a company to sponsor my MBA, so I graduated with a bit of money in the bank. I wanted to travel the world for a year, and instead of blowing that up in flights and beers on a tropical beach, I decided to invest in property, and travel with the rent money. My contract with my MBA sponsor was ending a month later, and the bank turned me down for a mortgage. So I put all my cash on one tiny studio, in the worst neighborhood of the Parisian suburbs. You know, the ones where cars burn and gangs riot? Yes, one of these.

But with great risk came great returns. The property was yielding 12% annually, and thanks to rental insurance, I was still getting paid when my tenant didn’t feel like paying rent. Then he died, and his widow stayed there for 18 months, protected by a few French laws that say heartless landlords can’t kick back payers if it’s cold, or until the council has found them another place to go not pay rent at. Fun times.

Nevertheless, the decrepit area got an influx of public funds to get better, and after 8 years, I sold for $50,000. The tenant had paid back the property, so technically, that was pure profit.

I took on debt to invest

Annoyed that I couldn’t get a mortgage and enjoy the beauty of leverage when prices doubled in Paris over 10 years, I looked for other ways to get money. I got a few loans and 0% balances on credit cards to invest. My mother and a close friend lent me money. That was a bold and crazy move. But the way I saw it, if the investments went wrong, I could still repay the instalments with my other streams of income. And having to find that money every month was pushing me to make more instead of resting on my laurels. Debt helped me build wealth faster, and everything turned out ok. I was aware of the risk and wouldn’t recommend you do it too, unless you are confident you can repay the loans independently of investment returns.

I turned my main residence into a rental

A few years later, I had saved another $25k for a deposit, and gone back to gainful employment for the sole purpose of getting a mortgage. The bank was much nicer this time, and I bought a three bedroom apartment in a fancy college town South of London. Following the common wisdom, I should have stayed there until my hair turned grey. Six months later, I was renting each room to a student, and quitting my job. What? No job security to pay the mortgage? Thanks to a 2.29% rate and my will to take on the extra hassle of charging three people individually, the property was cash flow positive, and I now consider the rent from the room I used to occupy (a whopping $800, it’s London after all) my maximum housing allowance to live anywhere else in the world.

I moved to the tropics to live cheaper

Speaking of which, I have been based in Guatemala since 2012. The low cost of living was not the sole trigger, but your hard earned cash goes a long way down South. And while my family is far away, I still make a European salary, so I can travel to my heart’s content. Again for lack of being able to secure a mortgage, I bought a property cash. It started as an emotional decision. I had had bad experiences with landlords and wanted a place where no one would tell me what to do. But I turned the little $50,000 house I originally bought into a $120,000+ guest house that yields over 10% a year. That money alone pays for two staff and all my living expenses. Sure, I am missing on the opportunity to invest these $120k on the markets, but I value living in my own house enough to not care.

I didn’t get my company match. Or a tax free retirement account.

When I worked in the UK, my company offered a retirement account with company match. That was an instant 100% return on investment, plus tax advantages. I politely declined. The hassle of having to wait until age 60 to see the money, fill some UK paperwork I wouldn’t be familiar with four decades later, and having my cash stuck until then was far from appealing. I was confident in my ability to grow my net worth fast and again not afraid of risk. I am financially independent, so I guess that worked out. I have a tiny portion of my money in index funds, but the rest is mostly in alternative investments, such as foreign land, peer to peer lending, and currencies. I need euros when I’m in Europe, dollars in the US and pounds for my UK rental anyway, so even if I predict currency swings inaccurately, I still have a use for the cash.

Let me repeat once more that these are in no ways recommendations for you to invest. But the next time you think life is about working a day job until you die, maybe have a look at a few alternatives instead.

I love it. It is not easy every day but the balance is overwhelmingly positive. I have written a bit about it on reachfinancialindependence.com and have a contact page there if you’d like to talk more in depth.